IBM set to drop 13% in 2015

Financial Mirror (Cyprus) - - FRONT PAGE -

Af­ter un­der­per­form­ing the stock mar­ket for many quar­ters, In­ter­na­tional Busi­ness Ma­chines Corp. (NYSE: IBM) shares al­most cer­tainly will have dropped an­other 13% this year to $139. That is down from $210 in March of 2013. IBM’s turn­around plan con­tin­ues to be re­jected by in­vestors.

Much of the dis­ap­point­ment in the tech com­pany is be­cause it has been un­able to re­place its hard­ware and soft­ware legacy prod­ucts with new cloud-based and AI prod­ucts — at least not at a rate that would pull IBM’s rev­enue up. Its ma­jor branded prod­uct in new age tech­nol­ogy is Watson. While Watson has been the source of press re­leases and small cus­tomer al­liances, out­siders have trou­ble see­ing what it does to sharply in­crease IBM’s sales. Granted, Watson may be one of the most im­pres­sive prod­uct ad­vances among large com­pa­nies in the sec­tor re­cently, but what it does for IBM may be very mod­est.

In its most re­cent 10-K, IBM de­scribed its ma­jor goals, look­ing ahead: “The com­pany’s busi­ness model is built to sup­port two prin­ci­pal goals: help­ing en­ter­prise clients to be­come more in­no­va­tive, ef­fi­cient and com­pet­i­tive through the ap­pli­ca­tion of busi­ness insight and IT so­lu­tions; and pro­vid­ing long-term value to share­hold­ers. The busi­ness model has been de­vel­oped over time through strate­gic in­vest­ments in ca­pa­bil­i­ties and tech­nolo­gies that have su­pe­rior long-term growth and prof­itabil­ity prospects based on the value they de­liver to clients.”

Pay­ing clients have been un­der­whelmed by in­no­va­tion and ap­pli­ca­tions, which has un­der­mined share value for long-term share­hold­ers.

In 2016, IBM faces an­other bru­tal year un­less its fi­nan­cial per­for­mance changes rad­i­cally. Its rev­enue dropped to $19.3 bln in the most re­cent quar­ter, com­pared to $22.4 bln in the same quar­ter a year ago. EPS from con­tin­u­ing oper­a­tions fell from $3.46 to $3.02. Among the wor­ries about IBM is that it can­not take hun­dreds of mil­lions of ad­di­tional dol­lars be­yond its cur­rent ex­pense cuts, which re­duced its to­tal ex­penses and other in­come to $5.8 mln in the most re­cent quar­ter from $6.5 bln in the same pe­riod a year ago. At some level of cuts, it loses an ex­pense base that makes it an ef­fec­tive com­peti­tor.

IBM’s shares are set for an­other down year in 2016. the the

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